Trend in New Zealand’s residential dwelling issuance rises steadily

Building permits in New Zealand for February rose 10.8% m/m sa after dropping sharply in January. A portion of the volatility is because of the multi-dwelling component, which rose 28.9% m/m sa, and the number of permits for “houses that climbed 4.1%. A total number of residential permits in the 12 months to February reached 27,661, the highest in a decade.

Out of the 16 regions, number of dwellings permit in 10 regions was higher in February 2016 than in February 2015.  Meanwhile, the trend in residential dwelling issuance has risen steadily by 0.9% m/m and is also gaining for housing that rose 0.5% m/m.

The trend for Auckland’s dwellings permit also reached the highest level at 9,500 dwellings; however, it is still not enough to meet housing requirements. Meanwhile the trend in Canterbury issuance declined further, while Wellington issuance fell noticeably in spite of bolstering property market. Costs of construction have increased. According to ANZ’s estimates, the value of residential permit per square meter increased at year-on-year pace of 11.8%.

There is a threat that limitation on affordability will mitigate further addition to the dwelling stock, which is needed by a rising population. Meanwhile, the value of non-residential permits dropped 5.4%, the second continuous drop. The decline was mainly because of a drop in the permit value for public transport buildings, administration and office. However, given the uneven residential issuance on a monthly basis, plenty of caution is required, according to ANZ.

The domestic momentum should be supported by the construction sector for some time given the recent rise in issuance, adds ANZ. But a weak global backdrop and tight financial conditions indicate towards decelerating domestic momentum.

“We expect 50bps of OCR cuts by the end of the year to hold the economy up and drive low inflation back to 2%”, says ANZ.